Author: Mark Tanner, Managing Director of Shanghai-based China Skinny
Ask a Chinese consumer about shopping, and 45% will instinctively think about doing it online. A typical online shopper in China shops online three times more frequently than the global average according to PWC research.
Although many have heard the buzz around China’s massive eCommerce numbers such as the 417 million shoppers spending $250bn a year; the $14.3bn spent in 24 hours on Single’s Day and the 1.7 million logistics staff who delivered them. But it’s not until you are on the street in China and experiencing it, that you truly appreciate it. Consumers in stores, in offices, on public transport and almost everywhere are constantly on their smartphones perusing products and reviews. City streets are crowded with fully-laden delivery men on electric bikes, and office foyers and workstations are piled high with packages bought online.
The world’s largest eCommerce market didn’t happen by accident, there are a series of interrelated factors that have driven China’s soaring adoption of online shopping:
1. Retail infrastructure
On the surface, many Chinese cities look sleek and modern. But scratching the surface, you will find retail infrastructure significantly less developed that in Western countries. Retail in China has developed regionally, with a large portion of retail being ‘Mom & Pop’ stores, contributing to a very fragmented retail environment. In America, the top-100 bricks & mortar retailers account for 57% of total retail spend. In China, the top-100 are less than 8%, meaning there are few retailers that come close to nationwide coverage.
eCommerce, on the other hand, accounts for 12-16% of total retail depending on whose estimates you use. Alibaba’s platforms account for around 80% of total spend, meaning its share is greater than the top-100 physical retailers alone.
eCommerce’s growth has been supported by significant investment in logistics from partners. Although they still have some way to come, seven cities can expect same day delivery and 88 next day delivery through Alibaba’s partners. China’s second-most popular platform JD, has 213 warehouses in 50 cities, and in total 5,367 delivery stations and pickup stations. Infrastructure is now so advanced, that someone in Shanghai can order Oregon cherries and receive them within 24-48 hours of being picked – faster than someone in Florida.
China’s mobile infrastructure and usage has probably been the biggest contributor to eCommerce growth, with more than 90% of all online Chinese connecting through their mobiles. The ability to shop, simply, from anywhere means that more than half of all online sales now happen through a mobile.
2. Range & reach
There are 198 prefecture-level cities in China with more people than Manchester. Although most of these cities don’t have the discretionary income of cities like Shanghai or Beijing, they are China’s fastest growing cities, with consumers having an increasing appetite for new and foreign goods. Many of these foreign goods are difficult to get at the local mall, but eCommerce opens up a whole new range of products.
Whereas foreign brands account for around 10% of China’s overall retail market, they make up 40% of goods sold online. If you look at categories such as wine, imports account for 85% of sales online. Even milk, where just 1% of domestic sales happen online, 30% of import sales are on eCommerce. That is why China’s big eCommerce players such as Alibaba and JD are busy opening up offices across Europe, North American and Australasia.
Chinese consumers love a deal, and the platform-based nature of Chinese eCommerce means that there are constant promotions online. Unlike most Western countries, where around 80% of consumers buy from a brand.com site, over 90% buy from an eCommerce platform like Taobao, Tmall or JD in China.
This enables them shop around and compare prices a lot easier, to find the best deal. And deals are a-plenty on eCommerce, with 35% of online sales discounted versus 14% of goods bought in physical stores.
In 2013, a local zoo in the Henan province announced that they had a lion. Kids dragged their parents from far and wide to see the maned beast, with crowds four people deep huddled around the cage. When the lion finally appeared, amongst the flurry of excitement, it started to bark. It was a Tibetan Mastiff. Right from an early age, Chinese consumers are subjected to fakes. There are countless cases from rats being sold as beef and lamb, fake Adidas garb, and even fake luxury cars. Even in a reputable bar in Shenzhen, dropping £80 for a bottle of wine doesn’t mean that it is real.
Although eCommerce has a reputation for peddlers of fakes, most of this occurs on the C2C platform Taobao. The faster-growing B2C platforms such as Tmall or JD require the licensed trademark-holder or a nominated party to sell products, meaning the likelihood of buying a fake is much lower than other channels in China. And if you do buy a fake, you can get refunds as B2C retailers must hold money in trust for such complaints. There are also the consequences of negative reviews, which are detrimental to online stores.
The experience in a physical retail store in China is typically very poor, whereas eCommerce service in China is among the best in the world. 80% of Chinese consumers will ask the vendor a question before buying online. If responses aren’t immediate, the shopper will just go to one of the other 8 million vendors.
A significant factor in exposure on eCommerce platform search rankings is customer service feedback. If a vendor provides great service from end-to-end, it is likely they will get great feedback meaning their store will rank highly in searches. There is not a similar incentive to provide such feedback in most physical retail stores, meaning Chinese consumers are actually more loyal to eCommerce platforms than any other brand or retailer in China, which has help drive sales.
The future of eCommerce in China
The above factors will only become stronger, assisted with increased government support and some remarkable innovation, particularly in China’s O2O space, ensuring that China’s eCommerce growth will continue for some time yet.